Worsening Dollar Scarcity Threatens Overseas Education

As dollar scarcity worsens in the country, the inability of parents, whose children school abroad, to access foreign exchange (forex) is threatening the completion of their wards’ education.

Although the Central Bank of Nigeria Governor, Mr. Godwin Emefiele, recently revealed that the apex bank spent about $2 billion annually on foreign school fees remittances, the new forex regime appears incapable of meeting such a huge demand any more..

Average weekly dollar turnover on the interbank forex market (spot) has dropped to $600 million presently compared with the $2 billion available as at August last year.

Findings by THISDAY showed that with the resumption of a new academic session in most schools abroad, a lot of parents are finding it extremely difficult to purchase dollars from the interbank forex market, with most of them left with the option of purchasing the greenback from the parallel market at N423 to the dollar as at Friday.

The development was further validated by bank’ returns on forex utilisation for the week ended September 2, 2016, that was published last week, which showed thin forex trading by the financial institutions. Only few of the banks even sold dollars to their customers for payment of school fees for their wards abroad.

For instance, the returns of forex utilisation published by Diamond Bank Plc last week showed that the bank which is one of the leading financial institutions in forex deals sold only $918,752 to 18 customers.

Also, First City Monument Bank Limited’s (FCMB) returns on forex utilisation showed that the bank sold only $452,918.26 to four of its customers. In the same vein, FirstBank Nigeria Limited, which sold dollars to a total of 434 customers in the week under review, did not record any sale to customers for the payment of school fees abroad.

However, FirstBank sold dollars to customers for the importation of petroleum products, raw materials, Bureau De Change (BDC) operators, estacode, personal travel allowance and business travel allowance.

But Zenith Bank Plc, whose returns of forex utilisation showed that the bank sold some amount of the greenback to a few of its customers for payment of tuition fees abroad, recorded reduced dollar sales in the week under review, which is a reflection of the scarcity of dollars in the system. Its returns showed that it sold $28,844,498.05 to customers, as against the about $50 million deals weekly which it used to report.

The Central Bank of Nigeria (CBN) is still the major supplier of forex in the market.

Nigeria is officially in a recession as the economy contracted by 2.1 per cent year-on-year in the second quarter of 2015. The naira has depreciated by an additional 11 per cent on the interbank forex market since the end of June, with the black market currently trading at N423/$.

Foreign Portfolio Investment (FPI) in the country remains weak in the absence of improved forex liquidity at the interbank market.

Oil prices are down five per cent since the end of June as activities of militants in the Niger Delta continue to disrupt oil production with average daily production dropping to 1.51 million b/d in July, one of the lowest production levels for the country. This compares with the average daily production of 2.15million b/d in January 2016.

“We are yet to see meaningful appreciation of the naira in the parallel market since the CBN lifted its ban on eight commercial banks from the interbank forex market last week. The announcement of the CBN’s ban on banks sent parallel market rates above N400/$ for the first time.

“Although there was a reported inflow of $270 million through Citibank for fixed income transactions last week, average weekly turnover of $600 million for forex spot transactions on the interbank market is still a far cry from that of last year August’s turnover of $2 billion,” a report by CSL Stockbrokers stated.

In its bid to attract foreign portfolio investments, the CBN recently announced that foreign currency imports in excess of $10,000 in cash deposited in domiciliary accounts would now be eligible for investment in the money market (prior to this, such funds were only eligible for withdrawals).

Meanwhile, as policy makers in the country continue to search for ways to lift the nation out of its present state of economic recession, the Chief Executive Officer of the Financial Derivatives Company Limited (FDC), Mr. Bismarck Rewane, has highlighted ways the economy can state a recovery.

Rewane, who stated this in his monthly economic news and views for September titled: “Understanding the ‘R’ Words,” that was presented at Lagos Business School recently, listed stock market crash, currency depreciation, suicide rates, political and social unrest, widespread banking failure and real estate delinquency as some consequences of economic recession.

The economist, who pointed out that the country is in a “mild” recession, stressed the need for government to target and stimulate aggregate consumption ($340 billion); consumer confidence (9.5%); gross fixed investment ($66 billion); and manufacturing index (53%).

He noted that given the fall in oil revenue, increased deficit financing plan is crucial for recovery, just as he urged government to borrow between $4-$5 billion externally. In addition, he advised the government to sell some of its assets and also issue Eurobond to raise funds.

Furthermore, Rewane called for minimum wage review as well as social safety net, reduction of interest rates, reduction as well as refund of banks’ cash reserve requirement (CRR) with the CBN and to curb the perceived abuse and arbitrage of forex.

“Investor enthusiasm is weak and recession must be combated with a powerful stimulus package. Doing nothing will lead to atroplogy,” he added.

In a related development, analysts at Renaissance Capital (RenCap) have predicted that deposit growth in the banking system would be further hampered in the second half of the year as a result of the complete removal of Treasury Single Account (TSA).

The CBN had banned nine banks from participating in the interbank forex market, due to possession of Nigeria Liquefied Natural Gas (NLNG) deposits which should have been remitted into the TSA. This number was estimated at $2.3 billion.

UBA was readmitted into the FX market the next day and its management explained that there were some reconciliation issues. Subsequently, the ban on the other banks was lifted a week after because the banks submitted credible repayment plans to the CBN.

According to the research and financial advisory firm, owing to the impact of the naira devaluation year-to-date loan growth in the first half of 2016 averaged 20 per cent for the banks, adding that when it adjusted for naira weakness, real loan growth averaged 2.8 per cent.

But it pointed out that real loan growth was highest at UBA, Fidelity Bank and Diamond Bank, saying they recorded real loan growth of nine per cent, 7.4% and 7.0% respectively as at the end of first half of 2016.

“Real loan growth will likely remain subdued in this operating environment, and any loan growth that management teams are guiding for is based largely on the impact of the naira devaluation. Following inflation of the oil and gas book post devaluation, total oil and gas exposure increased to 29 per cent of the total loan book in first half of 2016 from 26 per cent in first quarter of 2016. Manufacturing and general commerce were the two other sectors with the highest exposure, representing 12 per cent and nine per cent of loan book respectively as at first half of 2016.

“However, deposit growth was weak across the board, despite the impact of the naira devaluation. Only GTBank, Access and UBA managed to deliver strong nominal deposit growth, with year-to-date deposit growth coming in at 23 per cent, 17 per cent and 16 per cent respectively. Real deposit growth averaged three per cent across the sector,” it added